My lendingclub.com investment 13% ROI

In this blog post I outline my investment strategy using lendinclub that is providing me with a 13% return.

Why?

Everyone has savings and not a lot of people ever know what to do with a surplus of savings.

So many people have their “rainy day” funds built up (3–6months of expenses). But once you’ve done that it’s really hard to determine what else you could be doing with your money to make it grow. The safe way to do so is to keep putting it into your savings account, I was a victim of doing this as well.

Without realizing, for quite some time I had 15k USD in my savings account. In the diagram below (my actual account) you can see getting between .11%-.14% interest/month. That’s less than $2 USD per year for my $15.000! That rate-of-return is horrible!

lendingclub.com

For a long time I have been following different “experts” about business and investment. One of them, Ryan Malone, mentioned this alternative is basically a website to search different loans, view their credit score, etc. and determine if you want to lend them money. A return rate (6%-26%) is applied to each type (A-G). You can also decide how much you want to lend to that particular note (minimum 25 USD).

At first, I basically had NO idea what I was doing, but heard enough good things about it to give it a try. My idea was to take a safe approach to test out this theory.

First steps

1. Create an account
2. Transfer money to your LendingClub account (initially 15K in my case).
3. Search for the right loans; at the beginning this part is very interesting and funny, but also a lot of work.
4. In my case, I ended up defining a specific loans and risks levels I was interested in and turning on auto invest (the system will invest each time a new loan fits your requirements).

My Strategy

• >16%
• Avoid investments in business loans
• Avoid California
• Look in monthly income (6k a month)
• Credit score 680 and higher.
• No Public Records on File

You actually get a fair amount of information in order to make your decisions about each loan:

My first 3 days

I got the first few notes in, so far everything seems easy and clear to understand.

At the beginning the system doesn’t have enough information to show you your returns, so lists the historical rate of returns for your configuration (from 5.8% to 9.1%)

Fast Forward to Today (7 month later and after investing more money)

• I have a total amount of 33,819 USD in my account
• I have been reinvesting all my earnings
• My returns are about 13%
• I am making around 300 USD per month (assuming the returns stay the same)

The return is the most important point; 13% return is actually very good. Insanely good compared to the 0.5% that I was getting from the bank.

Risk

As always there is risk involved with any investment, in this case it’s if the person stops paying the loan, LendingClub will do their best to get that person to keep paying, but there is never any guarantee.

That is why they have different classifications for different loans:

Example: Loans type E pay around 20% but taking in account the ones that go to default that number drops to 6.4%.

This is my case so far

• Total of 240 loans
• 2 have been charged off — meaning: a loan for which there is no longer a reasonable expectation of further payments
• 26 have been fully paid — This number was way higher than what I have expected
• 206 are running normally
• And the other categories reference late loans in different states

At this point I can say that about 2% of my loans failed and I won’t get that money back. So far is not such a bad number, but the only way to be sure is to wait until the loans have been fully paid.

I my case I am only buying 36 months terms. The platform also offers 60 months terms but for some reason I don’t want to take that risk going so far in the future.

Conclusions

• So far I am very happy with the platform; easy to use, clear, and very good returns
• I am also aware that is still very early for me to get a realistic view, and only after 2 years of running on it I will have a more clear understanding around performance
• I love that it’s true passive income part of my portfolio. Takes little time to set-up and almost no time to manage it. You can leave it running for months or years
• This provides a monthly case flow. Probably one of the most amazing points I’ll be getting money every month, if I stop investing today I will get pay 300 USD/month for the next 2 years (on top of getting my money back, and assuming that my return rate does not change).
• Compound interest powered: If you have the auto invest option, you will be reinvesting your profits every month and this action will enable the compounding effect (basically your account will grow exponentially with time)